Scarcity and the Factors of Production

• Chapter 1: Section 1
• Pages 2-6

Economics

• Defined as… the study of people producing and exchanging to get the goods and services they want.

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• Economics is a social science that describes and analyzes how societies choose from among scarce resources to satisfy their unlimited wants.

Economics

• Microeconomics
• …the part of economics concerned with such individual units as industries, firms, and households; and with individual markets, particular prices, and specific goods and services.

• Macroeconomics
• …the part of economics concerned with the economy as a whole; with such aggregates as the household, business, and governmental sectors; and with measures of the total economy.

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• Economics = Choices

Needs and Wants

• Needs –
• …something people must have in order to survive.

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• Air, Food, Water, and Shelter

• Wants –
• …something people would like to have but is not necessary for survival.

Needs or Wants?

• As you can tell, each person’s needs and wants are dependent upon
• that individual’s perceptions.

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• This is based on our culture
• and
• rational behavior.

Goods or Services

• Goods –
• …physical objects.

• Services –
• …actions that people do for others.

Scarcity

• People are forced to make choices due to scarcity, the amount of resources available to people’s wants and desires.

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• There simply isn’t enough to satisfy all of our wants and needs.

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• This scarcity of resources can change if the amounts of resources or people’s wants increase or decrease.

Shortages

• A shortage occurs when a good or service is not available.

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• This happens when producers will not or cannot offer goods or services at the current prices.

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• Shortages can be temporary or long-term.

Why did the price of gas change so much

in the past 10 years?

Factors of Production

• Economists call the resources used to make goods and services the factors of production.

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• There are four basic types…
• Land
• Labor
• Capital (physical and human)
• Entrepreneurs

Land

• Land consists of the water, forests, and all other natural resources used to produce goods and services.

Labor

• Labor includes the human resources or the physical and mental efforts people use to create goods and services.

Capital

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• The buildings, tools, and machines that people use to create goods and services.

Categories of Capital

• Physical Capital

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• Human-made objects used to create other goods and services.

• Human Capital

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• Knowledge and skills a worker gains through education and experience.

Entrepreneurs

Entrepreneurs

• Entrepreneurs are the people who put together the land, labor, and capital in order to create new businesses.

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• Entrepreneurship includes imaginative thinking, the willingness to take risks, and the management and organizational skills needed to operate a business. (Don the Guide)